Canadian dollar rallies on stimulus optimism

By Jennifer Kwan

3 Min Read

TORONTO (Reuters) - Canada's dollar climbed to its highest level against its U.S. counterpart in nearly a week on Wednesday as investor expectations that major central banks may embark on a wave of policy easing sparked a rally in equity and commodity markets.

U.S. and global stocks and the euro were also buoyed as European officials explored ways to rescue Spain's debt-laden banks. <MKTS/GLOB>

"There's a sense that the European Central Bank, while they didn't act today, said that there would be some willingness at least for them to contemplate providing stimulus should data begin to deteriorate," said David Tulk, chief Canada macro strategist at TD Securities.

"So the expectation that we get a bit more policy support I think has helped the risk sentiment more generally rebound. And that's given the euro a bit of a lift, and pushed the Canadian dollar higher as well."

The Canadian dollar climbed to a session high of C$1.0276 against the greenback, or 97.31 U.S. cents, its strongest since May 31, and outperformed most of its G10 currency peers.

The European Central Bank resisted pressure to provide more support for the euro zone's ailing economy at its regular monthly policy meeting, holding its main interest rate steady at 1 percent.

But comments from ECB President Mario Draghi dashed hopes for more long-term, cheap loans, saying it was not up to the ECB to make up for other institutions' lack of action.

At 1:40 p.m. (1740 GMT), the Canadian dollar was at C$1.0286 against the greenback, or 97.22 U.S. cents, up from Tuesday's close at C$1.0380 against the U.S. dollar, or 96.34 U.S. cents.

After the ECB, focus shifts to U.S. Federal Reserve Chairman Ben Bernanke's testimony to a U.S. congressional committee on Thursday for signals of further stimulus measures.

Canadian bond markets retreated across the curve. The two-year bond fell 13 Canadian cents to yield 1.052 percent, while the benchmark 10-year bond dropped 45 Canadian cents to yield 1.788 percent, rebounding from recent record low levels.

Elsewhere, the Bank of Canada said on Wednesday its most recent auction of bonds due in 2022 produced an average yield of 1.765 percent, a record low for the auction. <CA/AUC>